Politics hurts Kuwait's progress to 2020 output goal

Politics hurts Kuwait's progress to 2020 output goal
Reuters Published: October 05, 2007, 00:21

Kuwait City: A political standoff in Kuwait has delayed progress on projects to boost oil output and left the world's seventh-largest oil exporter struggling to meet its 2020 output target of 4 million barrels per day (bpd).

The Opec member's oil production capacity now stands at around 2.8 million bpd and is unlikely to be much more by the end of the next decade, analysts said.

"We are very pessimistic about their chances of hitting the 4 million bpd target - largely because political issues that have long dogged projects are going to continue to be major factors," said David Kirsch, manager of market intelligence at Washington-based consultancy PFC Energy.

Kirsch expects Kuwait's capacity to be just shy of 3 million bpd by 2017.

A key obstacle to expansion plans is winning approval from parliament for international oil companies to take a role in an $8.5 billion scheme to boost output from the country's northern oilfields, known as Project Kuwait.

Despite having debated the plan for more than a decade, Project Kuwait has never gone beyond the committee stage to the floor of the house as some parliamentarians oppose the involvement of foreign companies.

Even with Project Kuwait, the 2020 target looks out of reach, said Colin Lothian, senior analyst for the Middle East at global consultancy Wood Mackenzie.

"They'd struggle even if the project went ahead," he said. "To get to 4 million bpd from where they are now is an awfully big jump."

Political standoff

Kuwait's parliament has a history of challenging the government.

One of the latest victims of the political standoff between parliament and the government was Oil Minister Shaikh Ali Al Jarrah al-Sabah, who resigned in June and has yet to be replaced. He held the position for less than a year.

Lack of continuity in the post was impeding expansion plans, an official at a state oil firm said. "We need stability at the top of the oil sector," the official said. "Nothing moves forward, a new minister always has to go back to the start. And the government fears any confrontation with parliament."

Acting Oil Minister Mohammad Al Olaim, who is also in charge of the water and electricity ministry, has made few public comments about Kuwait's oil policy.

During the summer, Olaim was kept busy averting blackouts as Kuwait's power system ran close to maximum capacity.

Kuwaiti newspapers have reported that Finance Minister Badr Al Humadhi is most likely to become the new oil minister. No decision is expected until after Ramadan.

More trouble may lie ahead in parliament for a new minister as some deputies have submitted a motion to tie oil production to the country's reserves in a bid to force the government to disclose reserves on a regular basis.

Doubts about the size of Kuwait's proven oil reserves have persisted since industry newsletter Petro-leum Intelligence Weekly reported last year that it had seen internal records showing reserves were about 48 billion barrels, about half what was officially stated.

Olaim said in July the reserves stood at 100 billion barrels but did not say if these were proven or unproven reserves.

Both Kirsch and Lothian believe reserves are closer to the level that PIW reported.

Lower reserves would reduce how long Kuwait could sustain future output boosts.

Lothian forecast Kuwait's output capacity at 2.8 million bpd in 2016, and to decline thereafter.

Pumping more of the country's heavy oil was also key to boosting capacity, but for that, as for Project Kuwait, it would need the experience and technology of international oil firms, said Karmel Al Harmi, an independent Kuwaiti oil analyst.

Kuwait has said it wants to boost heavy oil output to 700,000 bpd by 2020.